Spending your tax rebate wisely
By Michael D. Larson • Bankrate.com

I got my tax rebate letter from the Internal Revenue Service on Tuesday. If you haven't received yours yet, you will soon.

With checks of up to $600 scheduled to follow over the next two to three months, now's a great time for mortgage hunters and holders to think about the best ways to use their newfound wealth.

Why not spend the money on closing costs, pay down mortgage debt or build up some down payment savings? It may not be as exciting as placing the dough on "red" at the roulette table, but it's a heck of a lot smarter!

With some exceptions, taxpayers will get anywhere from $300 to $600 between now and the end of September. Many single filers will get the lesser amount while millions of married couples will end up with the whole shebang. To mortgage shoppers who don't think that's enough to make a difference, consider a few things:

Closing costs can run anywhere from 2 percent to 6 percent of a borrower's loan. Someone looking to buy a house with a $100,000 loan would therefore be expected to pay $2,000 to $6,000. Sounds like a lot. But married couples who choose to spend their rebates wisely can wipe out almost a third of their closing cost bills in one fell swoop! Not bad.

Here's another way to think of the windfall. Bankrate.com researchers recently surveyed 103 lenders and brokers in 10 states to find out what they charge, on average, for various closing costs. Using their $300, single home buyers can get "free" appraisals (average cost = $269.31) and have enough cash left over for a few celebratory pitchers at the local pub.

Teetotalers can cover almost the entire cost of checking their credit (average bill = $36.53) with the spare change. Married borrowers can throw in free processing ($302.71) or underwriting too ($279.93)!

It never hurts to throw a few extra dollars at your down payment either. Sure, $300 to $600 won't get you a lot of equity. But isn't it nice to know that by putting a few hundred extra dollars down at closing, you -- rather than your bank -- can own a few more ceiling tiles or roof shingles?

As for taxpayers who already own homes, they're in good shape too. At current interest rates, $600 will cover the entire monthly principal and interest payment on an $88,000, 30-year mortgage. Depending on what rates averaged when they obtained their loans and how much they borrowed, some homeowners will be able to take a month-long vacation from their mortgage payments by sending in their rebates!

Remember -- it's not everyday that someone gives you free money (yes, Rush Limbaugh fans, technically the IRS is just returning what it "stole" at tax time in the first place). Think about using it wisely.